PartnerRe Ltd’s board of directors has rejected the buyout bid from Italian investment company Exor and offered a sweetened deal for shareholders to complete its proposed merger with Bermuda rival Axis Capital Holdings Ltd.

In a statement released yesterday, PartnerRe said it had renegotiated the Axis merger terms in order to pay out an $11.50 per share special dividend to PartnerRe shareholders on the closing of the deal.

Exor responded by saying it remained fully committed to its $6.4 billion cash bid for PartnerRe and argued that the original merger agreement with Axis had been “the result of a flawed process”.

Exor added that the value claimed for the special dividend was “misleading”, as the funds to pay it would come out of PartnerRe’s capital and weaken the company’s financial strength.

The ‘break fee’, payable in the event of one of the companies walking away from the merger deal, was increased from $250 million to $280 million to further deter rival bidders.

PartnerRe’s statement said its board had held “extensive discussions” with Exor, the investment arm of the Agnelli family, whose business empire includes a large stake in Fiat Chrysler and the Turin-based football club Juventus.

An Axis merger would offer a very different outcome from an Exor takeover, in terms of the initial impact on the Bermuda economy.

While Axis and PartnerRe reiterated their determination to achieve $200 million in synergies, which would probably include redundancies and the use of less office space on the Island, Exor said its approach would be to “retain and build upon PartnerRe’s highly talented management and employees”.

Exor’s $130 per share “significantly undervalues” PartnerRe, according to the PartnerRe statement. During the negotiations, said the Bermuda reinsurer, Exor had made it clear that it would not budge on price.

PartnerRe chairman Jean-Paul Montupet said: “Over the course of the past three weeks, the board, as well as our advisers, engaged extensively with Exor and conducted a very careful and thorough evaluation of the many aspects of their proposal, including price.

“Throughout these discussions, Exor made it abundantly clear that it was not willing to adjust its price. The Board concluded that Exor’s proposal significantly undervalued PartnerRe and that there was no prospect of the offer leading to a superior proposal.

“Consequently, we determined that further discussion would not be productive and we have rejected their proposal.”

The $11.50 per share special dividend added to the Axis merger terms will “appropriately recognise for our shareholders the significant value of our company”, PartnerRe said. The dividend will be paid to PartnerRe shareholders just ahead of the completion of the merger.

Other than the dividend, the terms of the merger remained largely unchanged. On completion of the deal, PartnerRe shareholders would own about 51.5 per cent of the combined company and Axis shareholders 48.5 per cent.

According to industry analyst Charles Sebaski at BMO Capital Markets, the new PartnerRe-Axis proposal stills falls short of the Exor bid in terms of financial value, valuing PartnerRe at about $125 per share.

Exor chairman and chief executive officer John Elkann will now seek to gain the support of PartnerRe shareholders to opt against the recommendation of their own board of directors.

In its statement, Exor argued that the revised terms were “a clear admission that the original transaction with AXIS, which was the result of a flawed process, undervalued PartnerRe, as is the case with the revised transaction”.

Exor, which trades on the Milan Stock Exchange and which has a net asset value of around $14 billion, also said the purported value of the $11.50 special dividend was “misleading”.

“Since PartnerRe shareholders would own approximately 52 per cent of a combined PartnerRe/Axis, the incremental value to the PartnerRe shareholders is less than half of the proposed dividend,” Exor stated.

“The proposed extraordinary dividend will reduce PartnerRe’s capital by more than $550 million and significantly weaken PartnerRe’s financial strength at a point when both PartnerRe and Axis have been placed under review with negative implications by AM Best.

“In contrast, Exor’s all-cash proposal fully preserves PartnerRe’s financial strength, while delivering full and superior value to PartnerRe shareholders.”

Exor also claimed the PartnerRe board had failed to properly consider the merits of its bid.

“No consideration was given by PartnerRe to alternatives when it entered into the original agreement with Axis, and PartnerRe refused to engage fully with Exor in response to Exor’s proposal,” Exor stated.

“After Exor satisfied clarifying questions from PartnerRe, PartnerRe refused to permit Exor to conduct due diligence and ceased to engage. The result is another inadequate proposal for PartnerRe.”

Axis and PartnerRe say they have made “significant progress on integration planning” in recent months and that the first phase — the design of target operating models by business and functional leaders — is complete.

Axis CEO Albert Benchimol, who would lead the combined company, said work on integration had only increased the confidence in the transformational opportunity offered by the merger.

He added: “The special cash dividend announced today does not change our plans to resume share repurchase activities immediately following the closing of the merger.”

Axis chairman Michael Butt also argued that a merger with PartnerRe made sense for shareholders. “Our merger of equals offers shareholders real and deliverable value, and is based on a compelling strategic rationale,” Mr Butt said.